Indian buyers were on a gold buying spree during the July-September 2004 period despite the rising prices of the precious metal, said a World Gold Council report on Tuesday.
Net consumer demand rose by 16 per cent in volume terms and by 28 per cent in rupee terms over the same period in 2003.
For the 9-month period of January-September 2004, gold consumption offtake in India increased by 9.5 per cent in volume terms and 20 per cent in rupee terms.
The global figures, which were compiled for the World Gold Council by Gold Field Mineral Services Ltd, reveal that consumer demand (jewellery and net retail investment) for gold in July-September 2004 were 6 per cent higher than July-September 2003 in tonnage terms.
The impact of high oil prices and extended promotion supported jewellery off-take throughout the Middle East.
Jewellery demand in Turkey is outstripping last year's record. There was a 74 per cent year-on-year rise in net retail investment in Japan, with increased buying of the Senryobako treasure boxes, a wooden box filled with 10 kilo bars or gold coins, which have become a major investment success.
Commenting on the July-September 2004 figures, Sanjeev Agarwal, managing director, Indian subcontinent, World Gold Council, said: "The gentle upward trend in the price during the quarter does not seem to have deterred jewellery purchasers in India. Indeed, the reports from the main consuming markets indicate that buyers are not only accustomed to prices in excess of $400 per ounce, but also that they are prepared for possible further price rises."
"In India we have undertaken many promotional activities during the festival and wedding periods which have visibly paid off. The Speak Gold campaign appears to be influencing consumers favourably too. We believe that through such activities we can ensure that demand continues to rise," he added.All four elements of supply were lower than a year earlier. Overall supply of gold to the market in July-September 2004 was sharply reduced at 828 tonnes, 22 per cent below the level of supply in July-September 2003.
Gold jewellery demand
Economic conditions remained favourable for jewellery buying in July - September 2004 and the slow upward trend in the gold price during much of the quarter did not deter buyers.
Purchasers in Asia and the Middle East are usually highly sensitive to changes in the price level; however reports from many countries now suggest that consumers have not only become accustomed to prices in excess of $400 per ounce but are prepared for further increases.
As a result, jewellery consumption in July - September 2004 was 6 per cent higher than a year earlier in tonnage terms and 17 per cent higher in dollar terms during the same period in 2003.
In India gold jewellery demand was 16 per cent higher in July-September 2004 than a year earlier. This was due to:
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Strong economic growth, underpinned by fast growth in manufacturing and services
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Consumers adapting to prices above $400 per ounce but also to the belief that prices could rise further
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2004 saw an increase in shopping festivals and promotions allied to festive occasions
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The Speak Gold campaign By the World Gold Council had promising results
Investment demand
Globally, net retail investment was 10 per cent higher in tonnage terms and 21 per cent higher in dollar terms in July-September of 2004.
In India, the net retail investment surged by 16 per cent year-on-year and 10.7 per cent in the Jan-Sept, 2004 in tonnage terms.
The increase can be attributed to various factors, chiefly:
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Rise in Prices encouraged Investment due to the investors belief in the further strengthening of the Gold Prices
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With Investors considering Gold as an 'Alternate Asset Class' to diversify their risk on the exposure to shares and bond investments.
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Fears over potential inflation fuelled further due to the rise in oil prices
Supply
The overall supply of gold to the market in July-September 2004 was sharply reduced from one year earlier at 828 tonnes, 22 per cent below the level of supply in July-September 2003.
All four elements of supply were lower than a year earlier:
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Mine production was 3 per cent lower due to temporary factors including the ongoing effects of last year's landslides at the Grasberg mine in Indonesia.
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De-hedging was substantial in the quarter reaching an estimated 144 tonnes compared to an exceptionally small (for recent years) 4 tonnes one year earlier.
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Scrap, too, was lower than in 2003 when the rising price provoked more selling back of jewellery, bars and coins.
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Identified net central bank selling, at 87 tonnes, remained substantially less than 2003 levels. Among the signatories of the Central Bank Gold Agreement there was continued, steady selling by Switzerland and also a small sale by Germany for coin minting. Argentina, which had purchased 42 tonnes in the first half year, bought a further 12 tonnes, making 55 tonnes in total for the year.
October - December 2004 - Outlook
Jewellery demand in October-December 2004 in India will inevitably be affected to some extent by the rise in the price in November; however the year on year growth rate may not be too greatly reduced since price volatility deterred purchasing towards the end of 2003 as well.
Rainfall in the 2004 monsoon was below normal and this will reduce rural incomes but the impact is expected to affect primarily the first half of 2005.
In addition the growth of manufacturing and services are starting to reduce the relative size of the agricultural sector although it is still of crucial importance to India.
